Banks reject nearly three-quarters of the small business loan applications. Your odds of getting a business loan improve a little if you look beyond the bank. Even then, almost 60 percent of applications are turned down.
The rejection rates are disheartening, but they make sense. Small businesses and start-ups can be risky. Banks and other lenders may not want to extend a loan that won’t get paid back if the business folds.
Not being able to access capital puts business owners in a bind. One thing you can do is look at different types of funding. Asset backed finance is one option you may want to consider.
Defining Asset Backed Finance
Just what is asset-based financing? It’s any type of financing that’s backed by your company assets.
Essentially, you offer up an asset as collateral to secure the financing you need. If you happen to default on the loan, the lender takes control of the assets until you pay it back. This allows them to recoup some of the money.
You can think of your assets as an insurance policy for your lender. Having the assets there reduces their risk. In turn, they may be more willing to offer you the financing you need.
Asset-based financing is usually structured as revolving credit, like a line of credit. This gives your business access to ongoing working capital.
What Can be Used to Back a Loan?
Almost anything your business owns or buys can be used as collateral. Some common examples include:
Equipment, such as company vehicles or commercial bakery equipment
Invoices or outstanding customer payments